Inside Jersey: November 2015

YOU CAN LOWER your 2015 tax bill if you act before Dec. 31. Once April hits, there’s little you can do to slow the flow of your money to Uncle Sam. Here are nine steps to keeping more of what you’ve earned.

1 | Save more. You can put away $18,000 a year ($24,000 for those over 50) in your 401(k). If you’re not at the limit, boost your contributions. “You can send extra at the end of the year to your 401(k) to reach your max,” says Gail Rosen, a Martinsville-based certified public accountant.

Unlike a 401(k), you can fund an IRA until April 15, but if you save now, the money has more time to grow. The maximum contribution per person permitted to an IRA is the lesser of your earned income or $5,500, or you can save $6,500 if you are over 50. If your spouse works and you do not, you may be eligible for a spousal IRA, says Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. You can fund a Roth or a traditional IRA, but your total contributions for all IRAs can’t exceed $5,500 or $6,500 per person per year.

2 | Give, give, give. You can deduct charitable contributions as long as they’re made before Dec. 31. “Value the items at the lower end of fair market value or your original cost,” Rosen says. “Take a picture of what you are donating and get a receipt.” Also keep track of miles you travel and expenses you pay on behalf of a charity. You can donate appreciated stock you have owned more than a year, deducting full value and never paying capital gains tax on the appreciation.

3 | Itemize. You can choose between the standard deduction or itemizing each deduction. Common deductions include real estate, state and local income taxes, mortgage interest, investment interest, charitable contributions and miscellaneous deductions such as costs for tax preparation or job searches, Kiely says. Most New Jerseyans who own a home itemize because our state leads the country with high income and real estate taxes. Adding mortgage interest puts most people ahead of the standard deduction, Kiely says.

4 | But beware of AMT. The alternative minimum tax (AMT) is a parallel tax system first enacted in 1969 to stop 155 rich people who had escaped paying taxes altogether. AMT excludes certain deductions, such as property taxes. For decades, AMT was not indexed to inflation, so as middle-class incomes rose, more people got clobbered with the higher tax, Kiely says. AMT is now indexed to inflation. If you are at risk of an AMT, work with a tax preparer to see what you can do. (Your tax preparer would have to run the numbers to see if you are at risk.)

5 | Bunch it! Bunch together miscellaneous expenses. They’re deductible as long as they exceed 2 percent of your adjusted gross income. They can include unreimbursed employee business expenses, such as union and professional dues and home office expenses, job hunting expenses and costs related to investment income or property and tax preparation fees, Rosen says. You cannot include miscellaneous itemized deductions for AMT purposes.

6 | Save for your health. If you have a health savings account (HSA) available, take advantage of it. Employer contributions are not treated as taxable income, Kiely says, and employee contributions are tax deductible, even if you don’t itemize. Plus, qualified payments made from an HSA are tax-free. An HSA can get you around the 10 percent of adjusted gross income threshold you have to pass to deduct medical expenses.

7 | Pre-pay. You can pre-pay property taxes, but this isn’t without caution. “If you pay five quarters of real estate taxes in 2015, then in 2016 you should pre-pay again,” Rosen says. “If you do not pre-pay again, you will only deduct three quarters of real estate tax payments in 2016.” Again, this will not help if you’re in AMT states. If you have a college student, consider pre-paying enough college costs to get the max from a deduction or credit. The maximum deduction for the American Opportunity tax credit is based on up to $4,000 of tuition, fees and books for the first four years of college. The Lifetime Learning Credit is up to $10,000 in tuition and fees.

8 | Delay getting paid. You pay taxes on income in the year it’s received, so ask your boss to defer your year-end bonus until 2016, Rosen says. The self-employed can delay billing to receive payments the following year. “This may make sense if you will be in a higher tax bracket in 2015 than in 2016,” Rosen says.

9 | Sell stocks. Consider selling losing stocks to offset gains up to the $3,000 limit. Also be sure investments are subject to long-term gains, which are taxed at a lower rate, Rosen says.

Karin Price Mueller, the founder of NJMoneyHelp.com, writes the Bamboozled consumer affairs column for The Star-Ledger, and the Money and Biz Brain columns for Inside Jersey. Send your money questions to her at Bamboozled@njadvancemedia.com.